The Financial Conduct Authority has warned consumers to be wary of pitfalls in defined benefit transfer advice and called out examples of bad practice amongst advisers.
In a video published on its website yesterday (August 21) the regulator again set out its expectations of advisers when advising on pension transfers and urged consumers who may be unsure of the standard of advice they received to query their adviser, or failing that to make a complaint to the ombudsman.
The FCA's guidance includes an advice checklist which urges consumers to be sure their advisers spoke about cost disclosure, carried out sufficient research, provided a suitability report and covered the benefits of any ongoing service.
But the watchdog also gave examples of advisers working to subpar standards and warned of corner-cutting practices in the DB transfer market.
The FCA said it had seen advisers regularly use the same suitability report for different clients, whilst merely changing the client's name, and warned some advisers had been "overplaying" the merits of transferring out to get better death benefits for the client.
The regulator said: "When we’ve looked at the client’s situation, they have no spouse nor dependents to leave this money to, so it’s been a pointless exercise."
It added: "It’s really important to point out that we are not suggesting for one minute that you have all received poor or unsuitable advice. We just want you think about this advice process."
The FCA said good practice will see an adviser disclose to clients whether they offer independent or restricted advice at the start of the process, along with any costs and charges.
The regulator also told consumers to look out for a transfer analysis which it stressed should "illustrate the cost of replacing the benefits that are being given up if you leave your employer’s pension scheme".
It had introduced new rules in this field last year, which mean advisers also have to highlight the cost of buying an alternative retirement product after the transfer.
But the regulator added: "It’s really important to point out that we wouldn’t necessarily expect you to be involved in the research process.
"This is about the adviser assessing what they know about you, reviewing the market, and then coming up with a suitable recommendation, coming up with whatever is in your best interest."
The City-watchdog said its message to advisers "is and always has been very clear" and reiterated its stance that it will generally not be in the client's best interests to leave a pension a scheme that will provide them with a guaranteed income in retirement, other than in very specific circumstances.
This position was re-enforced earlier this year when the FCA found less than 50 per cent of pension transfer advice reviewed by the regulator was deemed suitable.
Further research found 69 per cent of individuals in a survey of 3,015 firms had been recommended to transfer, with the watchdog warning much of the advice it had seen was "still not of an acceptable standard".
The watchdog found the average transfer advice value was £352,303, equivalent to a total value advised on of £82.8bn. This included both actual transfers and advice against it.
In response to its bleak findings in the DB transfer market the FCA has promised to ramp up it supervision of the market and has already started to visit the most active advisers in the sector.
The regulator has promised to "not hesitate" to use its investigatory powers if it identifies evidence of serious misconduct which could have caused harm to consumers.
rachel.mortimer@ft.com
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